Product Market Competition, Ownership Structure And Capital Structure

In this paper, we analyze the impact of the product market competition and ownership structure on capital structure. We use a panel of more than 1,000 companies in China over the years 2004-2006. These firms are all listed on the Shanghai Exchange and Shenzhen Exchange. First, we study the separate effects of competition and ownership concentration on firm capital structure. Next, we investigate their interaction: are they substitutes or complements? Last, we use cross-variable to inspect their impact on firm capital structure.Our results indicate that there is a significant positive correlation between the product market competition intensity and the capital structure. The percentage of the tradable A-shares is positive related with debt ratio. The percentage of the state-owned shares has significant negative correlation with debt ratio. Capital structure is negatively related to ownership concentration. Outside bolckholders are positive related to capital structure. Finally, it is not different for the correlation between ownership and debt ratio under different degrees of competition. But the lower the product market competition is, the more significant the positive correlation between the percentage of tradable A-shares and debt ratio is, and the more significant the negative correlation between the percentage of state-owned shares and long-term debt ration is. The result above shows that to some extent the product market competition weaken the impact of ownership structure on capital structure, which to some extent indicates that the product market competition and ownership structure are complementary.